TDS is a bit difficult subject for a beginner in the taxation field, There are many sections of TDS under Income tax rule.TAXIN has simple tutorials on all TDS sections that every Beginner can understand.
What is TDS on Rent?
Examples will help you understand things easily, so Let’s Begin with an example.
X company runs their business on a rented building, and monthly rent is 50000 INR. The building owner is an individual MR.A.
As per Income tax rule Tax to be deducted on certain kinds of transactions, a certain percentage from source. In this example X Company is the source of Income for MR.A. and it is the duty of Source to deduct a certain percentage from the income source and deposit to the government on behalf of the deductee. Deductee is a person from whom the tax is deducted.
- Section 192 -TDS on salary and calculation
- Section 194J TDS on Fees for professional and technical services
- Section 194 BB TDS on winning from Horse Race
Exemption Limit for Deduction of TDS on rent.
It is important that Income tax rule, tells us some exemption limit for deducting tds, In our case Exemption of TDS on rent is Rs 180000 per annaum. That is,assume X company is paying rent Less than 180000 in a year, the company is not liable to deduct and pay TDS.
TDS deduction in case of Co-owner: There might be situations ,a premises have co-owners. In such case, the limit is applicable for each owners. That is each owner should receive more 180000 to deduct TDS.
Exemption category for TDS Deduction.
TDS shall not be deducted if rent paid to the Individuals / HUF who are not coming under the ambit of Tax audit Under Section 44AB.
TDS rate for Rent
|2%||Rent paid for the use of Machinery,Plant & Equipment|
|10%||Rent paid for the use of asset other than above, like building, Land Etc|
So, The total of Rent paid in our example is 12 x 50000= 600000 Which attract TDS @ 10% and normally deducted monthly at the time of rent payment or it becomes due.Suppose,you are paying 170000 in a year, TDS on rent need not be deducted.
Service Tax on Rent
It is mandatory that you should pay service tax along with rent if the owner of the premises receives more than 10 Lakhs. It is applicable even if he receives money by providing other services also. The source he receives can be more than one.
The rate of service tax on rent
The rate of service tax on rent is 14.5% along with swatchh bharath cess , and from June 1 2016 the rate would be 15 % as the new Krishi kalyan cess will come into affect.
TDS on service tax will be calculated excluding service tax ?
TDS should be collected on the base rent amount not on rent including service tax amount.
For Example :
Rent to be Paid : 50000
Add Service tax @ 14.5% = 7250
Rent with service tax 57250
Less TDS @ 10 on 50000 5000
Net Rent Payable 52250
Lower Deduction or NIL deduction of TDS
There are situations where tax payers pays TDS but do not comes under the taxable Income slab. In such case he can apply in Form 15 G,Form 15 H for non deduction of TDS.
TDS to be deducted on advance rent paid.
As per Income tax rule, TDS on advance rent also be deducted. What should be case If the advance rent paid for the coming financial years?.
- In such case credit shall be availed in the same proportion in which the rent is received.If TDS is spread over more than one year then you have to show your rental income in next year and claim TDS accordingly.
- In case the asset is sold,credit for the TDS on rent which has not been availed till the date of sale shall be allowed to the new owner.
What to do when advance rent paid but rental agreement got cancelled?
In such cases the rent advance paid shall be refunded and the tenement, the owner of property shall state that” The TDS deducted has not been claimed in his ITR Form.